Over the last several weeks, we have received numerous questions in reactions to many of our posts, presentations, and comments. The increasing frustration of private practice PT’s who are being cut across the country by large payors has been the biggest contributor to the questions.
In this first part of a 2 part series, we will attempt to address the most common questions that we have been getting lately.
Ques #1 Why do insurance company’s pay hospital based providers more than freestanding?
Hospital’s (the Have’s) provide a bundle of other services that are important to payors that freestanding providers do not (the “not’s”). In essence, hospitals are either monopolistic or oligopy’s in their respective geographic areas. Largely protected by regulations giving them exclusitivity (e.g. CON laws), they have the ability to negotiate rates as part of their “bigger picture” in their relationship to payors. AND hospital CFO’s are not genetically coded with peace corps genes like PT’s-they know how to say “NO”.
Ques #2 Why do insurance companies offer rates to PT’s that are well below their costs and roughly 30% of medicare rates?
Payors believe that PT is a “black hole”. They don’t know what they pay for and they are not sure what they get and they are not sure what determines when a patient has reached medical improvement. Therefore, treat them all like plankton and pay low rates. The more simple answer is that “the can” because they realize most markets are oversaturated with therapy providers and many are willing to take rates below their costs.
Ques #3. Why do PT practices take rates below their costs?
This is not as simple question as it appears. History would reveal that PT’s and their natural predisposition towards doing good things for patients (part of that genetic thing) have unwittingly not charged for all of their service time which has resulted in a natural undervaluing of services from an economic and pricing standpoint. When one set of “physical therapy” is charging and receiving substantially less than another set of “physical therapy”, data analysis and pricing naturally falls to the lowest denominator.
This phenomenon has traditionally caused PT practices to just continue to take falling rates. PT is also a referral oriented business where we count on receiving patients from sources. Practices don’t like to confuse the referral train by making their referral sources decide based on reimbursement where to send patients. Of course, their is always the mistaken belief that taking rates below costs gives you an edge in the marketplace. Lastly, PT’s just don’t know how to say “NO”.
Ques #4. What about all this talk from payors about evidence-based practice, outcomes, P4P, and patient satisfaction?
These are all euphemisms for “we want you to do more but pay you less”. When the difference between performance and underperformance is undetermined, rates fall to their lowest common denominator.
Ques. #5. Why do insurance companies pick on PT?
Great question, glad you asked. PT represents at best 2–3% of the health care premium. However, musculoskeletal costs are rising and soon to be higher than cardiac and oncology (for some payors they may be already). Part of musculoskeletal costs include PT (along with imaging and pharmacy but we won’t go there right now). Because of the nebulous nature of PT (the “black hole” thing), it is an easy captive market to pick on. A more simpler answer is “they can”.
More to come in Part II. Thoughts?
Larry